Various sources reported Monday that the Federal Reserve will propose a new set of rules for the mortgage indstry under its HOEPA (Home Ownership and Equity Protection Act) authority at a meeting of the Fed's Board of Governors, set for Tuesday morning.
Chief among the expected changes are new rules limiting the application of prepayment penalties in subprime lending, along with a few other changes that at this point should probably be considered par for the regulatory course: escrowing for taxes and insurance, qualifying at the fully-indexed rate, and limitations on the use of low-doc mortgages among subprime borrowers.
At least one state isn't waiting for the Fed to step in and prohibit prepayment penalties, which have become the lightning rod for consumer criticism of subprime lending: Colorado Gov. Bill Ritter said Monday that the state has enacted an emergency rule limiting prepayment penalties. The rule went into effect on Friday.
From the press statement:

Acting on the concerns of Gov. Ritter as well as those of consumer groups and members of the legislature, [Division of Real Estate Director Erin Toll] has issued an emergency rule restricting prepayment penalties on mortgage loans. The new rule prohibits prepayment penalties that extend past the adjustment date of an interest rate, teaser rate or payment rate ... The rule creates a presumption that a mortgage broker has violated their duty of good faith to the borrower if they recommend a loan product with a prepayment penalty that extends beyond the adjustment date.

Notice the language above, because it establishes a fiduciary standard for mortgage brokers. I suspect you'll see similar language in the Fed proposal due on Tuesday.

This month inHousingWire magazine

The appraisal industry is in the midst of huge disruption as automated valuation models and hybrid appraisal products gain favor with regulators and investors. What does the future hold for appraisers and appraisal companies as they adjust to the new realities of automation?

Feature

[Free HousingWire Magazine read] As Millennials grapple with paying off student loans, their opportunity to buy a home gets pushed further and further into the future. That delay has consequences far beyond individual students — the growing student debt crisis impacts every part of the economy.

Commentary

There has been a conscious and rapid shift to broaden the use of alternative valuation products for origination. Not every decision needs a $500, full-blown 1004 interior appraisal. And in some markets where appraisers are short in number, the turn times can stretch from days to weeks. What these new alternative — some would say disruptive — valuation products do is enable lenders and servicers to better match the product to the risk by harnessing big data and technology.